In the last tax year, voluntary disclosure of unpaid tax by landlords was down by 42%. The lowest figure in 7 years has prompted HMRC to target landlords specifically, looking for unpaid tax.
So why are fewer landlords disclosing their tax errors? It could be due to falling on hard times as a knock-on effect from the pandemic. But it’s actually more likely that significant numbers of landlords have exited the profession, thanks to recent tax legislation changes which are making property rental less profitable.
HMRC’s ‘Let Property’ campaign encourages landlords to come forward and declare tax arrears, whether deliberate or accidental. It has seen limited success since its launch in 2013, when it was expected to collect £500 million in undisclosed tax per year (it has actually collected only £184m in the last 8 years).
But the campaign’s limited success should not deter landlords from coming forward. HMRC can fine landlords up to 100% of the value of the unpaid tax, they can reclaim payments stretching back over a 20 year period, and even bring criminal charges. Basically, you don’t want to be caught; disclosing your error is always your best course of action!
Voluntarily disclosed errors will result in tax being reclaimed from only from the previous 6 years rather than 20, fines are generally smaller, and you will have 90 days to pay any tax owed.
Landlord tax has become an increasingly complex area of legislation, with significant regulatory changes which have left landlords overwhelmed. What was once a supplementary-profession with relatively straightforward legislation has now become quite an admin-heavy, time-consuming and confusing job. It is very easy to see how many landlords, professional and semi-professional, have miscalculated tax due as changes have rolled in over recent years.
And remember, it’s not just UK rental income that is taxable. If you have overseas property you receive an income from this must be declared too – HMRC has gained greater visibility in this particular area, so don’t wait to be caught out.
For full time, professional landlords, using an accountant is a sound business choice. But more and more small landlords are turning to accountants to assist in their tax administration to ensure they are operating legally and tax efficiently.
If you’re concerned that you may have undeclared tax due to rental property income you can call our team of expert chartered accountants, who will be able to assist you in your calculations and will help you declare to HMRC.